A farmer might get dizzy from vertigo looking back at the last two years in commodity prices.
But even though the stunning rally of 2007-08 and the sickening fall of 2008-09 makes it hard for any producer to get his bearings, a look at a longer term chart wouldn’t cause the same discombobulation.
And analyst David Reimann says agricultural commodity prices now are hinting at a long-term improvement.
“We are still in a rising trend,” said Reimann, vice-president with Informa Economics in Winnipeg.
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“We’ve gone from some ridiculous rallies into a major selloff, but my idea is that the (long-term) growth (in consumer demand) is there, it’s just a little quieter than we’re seeing it – even now.”
The lingering question of whether a long-term commodity bull market is a viable concept is still being debated at the upper reaches of the analytical world.
Inflationists still believe that world economic growth is likely to continue, huge government spending is likely to spur inflation and that will drive more money into hard assets like commodities. That will raise their prices.
Deflationists think consumer demand is weak and possibly dying and this slump in consumption will make asset prices sag for years, including those of commodities.
Reimann said the situation leaves intact a long-term trend of gently rising commodity values. Even though the 2007-08 rally was hammered down, crop prices seem to still be following the same rising trend.
A 10-year chart of U.S. wheat and Canadian canola futures markets shows that even the 2008 slump did not break the long-term support levels. Canola futures have stayed above the low points of 2000-01 and are well above the 2004-06 year. Current values are at about the high points of 2002 and 2004.
Reimann said the last strong commodity market, the 1970s, saw wild volatility in crop prices, but the long-term development was that a new, higher plateau level for crop prices was reached and prices never again fell to the old lows.
That phenomenon may be occurring again. Reimann said it’s too early to know, but he believes it’s likely.
“We won’t go down to the old lows because the world really has changed and we’re just figuring out where that support really is,” said Reimann.
“We could go lower than we hit last year, but I think we’re back at a more realistic pace.”
